Depreciating aircraft parts, dealing with taxes, etc.

Most owners, I assume, have corporations which do the actual owning and
which provide a liability firewall. But how are taxes managed?

The issue I think I'm facing is we pay money into the corporation against
future events like overhaul, repainting, etc. These monies add up. But
since this is really just a reserve that's going to be spent in a few
years, I'm loath to have this considered "profit" and thereby become
taxable.

The answer, I'd imagine, is to depreciate those things against which the
reserves are accumulating. For example, if I pay $25/hour into the bucket
for engine reserve, I want to depreciate the engine by $25/hour.

Can one do that? What [very!] little I know about taxes has
calender-based depreciation schedules. Can one have a use-based schedule?

Thanks, and any suggestions, corrections, pointers, or ideas would be
welcome.

- Andrew

"Andrew Gideon" wrote in message
news

Most owners, I assume, have corporations which do the actual owning and
which provide a liability firewall. But how are taxes managed?

The issue I think I'm facing is we pay money into the corporation against
future events like overhaul, repainting, etc. These monies add up. But
since this is really just a reserve that's going to be spent in a few
years, I'm loath to have this considered "profit" and thereby become
taxable.

IIUC, it should be set up as a reserve/expense account, not as income to the
corporation. The only income to the corporation should be the management
fees (??)


The answer, I'd imagine, is to depreciate those things against which the
reserves are accumulating. For example, if I pay $25/hour into the bucket
for engine reserve, I want to depreciate the engine by $25/hour.

Can one do that? What [very!] little I know about taxes has
calender-based depreciation schedules. Can one have a use-based schedule?

It sounds like you're trying to depreciate components, rather than the
entire aircraft, on an hourly basis. I don't think that's a good idea. That
takes much more work for your accountant. I can imagine doing a
calendar-based depreciation, but not if the calendar is harder on your
aircraft's value than useage is.

Thanks, and any suggestions, corrections, pointers, or ideas would be
welcome.

Are you a "partner" to the corporation, or is it third party, such as a
partnership or lease back?

(My explanation here is probably NOT technically correct)
My company (LLC) is the registered owner of my aircraft. We deduct expenses
as incurred and take depreciation and make an entry in "Reserves" on an
hourly basis for such things as recurring maintenance and overhaul.

The LLC then "charges"me for any personal use I make of the aircraft. I then
declare that as personal income, just as when I draw from our cash accounts
for "personal income - cash".

You can get into "trouble" if you try to expense your personal usage, so
make DAMN sure you are really doing business and have documentation to back
it up. This is probably (though not sure) more critical when you have
corporate ownership.


--
Matt Barrow
Performace Homes, LLC.
Colorado Springs, CO

On May 10, 2:29 pm, Andrew Gideon wrote:
Most owners, I assume, have corporations which do the actual owning and
which provide a liability firewall. But how are taxes managed?

The issue I think I'm facing is we pay money into the corporation against
future events like overhaul, repainting, etc. These monies add up. But
since this is really just a reserve that's going to be spent in a few
years, I'm loath to have this considered "profit" and thereby become
taxable.

The answer, I'd imagine, is to depreciate those things against which the
reserves are accumulating. For example, if I pay $25/hour into the bucket
for engine reserve, I want to depreciate the engine by $25/hour.

Can one do that? What [very!] little I know about taxes has
calender-based depreciation schedules. Can one have a use-based schedule?

Thanks, and any suggestions, corrections, pointers, or ideas would be
welcome.

- Andrew

What taxable income are you trying to defer with depreciation???

-Robert

Andrew Gideon wrote:

Most owners, I assume, have corporations which do the actual owning and
which provide a liability firewall.


Most owners do not as this provides no protection at all.

"Newps" wrote in message
. ..


Andrew Gideon wrote:

Most owners, I assume, have corporations which do the actual owning and
which provide a liability firewall.


Most owners do not as this provides no protection at all.

Depends on "who" the corporation consists of, and for what purpose.

A corporation with the aircraft as the only asset and only one officer,
the owner of the plane.





Matt Barrow wrote:

"Newps" wrote in message
. ..


Andrew Gideon wrote:


Most owners, I assume, have corporations which do the actual owning and
which provide a liability firewall.


Most owners do not as this provides no protection at all.


Depends on "who" the corporation consists of, and for what purpose.

"Newps" wrote in message
. ..
A corporation with the aircraft as the only asset and only one officer, the
owner of the plane.



That's one scenario. Certainly not the only one.

It sounds to me like Andrew's situation is one of an "Aircraft Management"
corporation.

That may or may not provide liability protection. In the case of an owned
corporation owning the aircraft, it doesn't protect the corporation, but it
does protect the pilot and his personal assets. If the prupose of corporate
ownership is merely to avoid liability, that probably won't work.





Most owners do not as this provides no protection at all.


Depends on "who" the corporation consists of, and for what purpose.

On Thu, 10 May 2007 18:33:24 -0600, Newps wrote:

A corporation with the aircraft as the only asset and only one officer,
the owner of the plane.

In my particular case, I'm speaking of a corporation owned by 45 members
which owns four aircraft. But I'm guessing that the difference between
this and other organizations is more of scale than anything else.

Does single owner/single aircraft reduce the protection of the corporate
veil? Is that very different from two owners, or twenty?

- Andrew

On Thu, 10 May 2007 16:14:30 -0700, Matt Barrow wrote:

IIUC, it should be set up as a reserve/expense account, not as income to
the corporation. The only income to the corporation should be the
management fees (??)

I guess I'm confused about how payments into the company, to be used in
some future year, are tracked as an expense.

[...]


It sounds like you're trying to depreciate components, rather than the
entire aircraft, on an hourly basis.

That's what I was thinking.

I don't think that's a good idea.
That takes much more work for your accountant.

That's a good point.

[...]

Are you a "partner" to the corporation, or is it third party, such as a
partnership or lease back?

I'm one of the "shareholders", except that it's a corporation that doesn't
issue shares.


(My explanation here is probably NOT technically correct) My company
(LLC) is the registered owner of my aircraft. We deduct expenses as
incurred and take depreciation and make an entry in "Reserves" on an
hourly basis for such things as recurring maintenance and overhaul.

So you depreciate the value of the entire aircraft by the reserve amount
each hour? And then, at engine overhaul time, you increase the value of
the airplane by the value of the engine?


The LLC then "charges"me for any personal use I make of the aircraft. I
then declare that as personal income, just as when I draw from our cash
accounts for "personal income - cash".

I don't follow this paragraph at all, I'm afraid. If you're paying into
the LLC, how is that personal income?

- Andrew

On Thu, 10 May 2007 16:18:34 -0700, Robert M. Gary wrote:

What taxable income are you trying to defer with depreciation???

I'm not sure that it's taxable income (which is part of my problem), but
I'm envisioning this asset called a "reserve account" growing over the
years until an overhaul is required.

- Andrew